Venture capitalist reticence aids smaller investors

San Francisco Business Times - by Patrick Hoge

 

It’s a good time to be an angel: With venture capital in the dumps, Bay Area angel investing groups say the quantity and quality of potential deals coming through the door is up as entrepreneurs are forced to look for alternatives.

“We’re getting some very interesting deal flow that would have gone to traditional venture capitalists in the past,” said Randy Williams, founder and CEO of the Keiretsu Forum, which has 350 members in Northern California. “What’s happening is the venture capitalists are focused on existing companies and the limited partners are not giving them additional capital.”

Ian Sobieski, a founder and managing director of Menlo Park-based Band of Angels Fund, L.P., which has 125 members, sees a similar trend.

“There’s less money available for startups, so the ones we are seeing are high quality,” he said.

Molly Deringer, entrepreneur services manager at Investors’ Circle in San Francisco, which has a membership that is two-thirds angel investors, said her organization saw “a substantial increase in the number of companies applying to present at our events as well as the overall quality of deal flow in 2009.”

“Companies were generally better prepared and a bit more mature than we’d seen in previous years,” she said.

To be sure, angel investing — which traditionally serves up financing in smaller slices than venture capitalists would consider — has not been immune from the financing downdraft. In the Bay Area, Keiretsu Forum funded fewer companies for less money in 2009 than 2008, while Band of Angels locally did more deals but for a smaller total outlay. What has the “archangels” excited, though, is the improved deal flow and interest among individual investors, evidenced by the nearly 400 people attending Keiretsu’s annual Angel Capital Expo in Mountain View this month, about 100 people more than the prior year.

And as the angels grow in prominence, they are able to call on greater resources. Williams said his organization added 51 members to its Northern California chapters in 2009 — and 80 percent had a net worth of $10 million or more, where the average for the previous eight years was $8 million. Founded in Lafayette in 2000, Keiretsu now has 18 chapters, including four in the Bay Area and one in Madrid, Spain, that opened this week.

That includes Barry Nelson, who founded a high-tech workplace safety monitoring company in San Carlos called DBO2 Inc. in 2001 and sold it in early 2008 to Industrial Scientific Corp.

Nelson was focusing on golf and not looking to become an angel, but joined Keiretsu in September upon the recommendation of a friend. Nelson is still “seriously considering” investing in a venture capital fund, although he says he has been concerned about trends in the venture industry.

“I am looking for opportunities to make investments very early in the process, contribute more than money and get them liquid quickly. This might mean smaller deals and more hands on work for me and my network,” Nelson said.

phoge@bizjournals.com / (415) 288-4949

SOURCE: http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2010/02/01/story5.html?ana=e_ph